Yahoo Finance Results: Royal Mail plc Confounded Analyst Expectations With A Surprise Profit
Investors in Royal Mail plc (LON:RMG) had a good week, as its shares rose 8.0% to close at UK£2.97 following the release of its half-year results. Although revenues of UK£5.7b were in line with analyst expectations, Royal Mail surprised on the earnings front, with an unexpected (statutory) profit of UK£0.014 per share a nice improvement on the losses that the analystsforecast. The analysts typically update their forecasts at each earnings report, and we can judge from their estimates whether their view of the company has changed or if there are any new concerns to be aware of. We thought readers would find it interesting to see the analysts latest (statutory) post-earnings forecasts for next year.
Check out our latest analysis for Royal Mail
Taking into account the latest results, the most recent consensus for Royal Mail from eleven analysts is for revenues of UK£11.8b in 2021 which, if met, would be an okay 4.4% increase on its sales over the past 12 months. The company is forecast to report a statutory loss of UK£0.017 in 2021, a sharp decline from a profit over the last year. Yet prior to the latest earnings, the analysts had been forecasting revenues of UK£11.3b and losses of UK£0.067 per share in 2021. There's been a pretty noticeable increase in sentiment, with the analysts upgrading revenues and making a loss per share in particular.
The consensus price target rose 16% to UK£2.57, with the analysts encouraged by the higher revenue and lower forecast losses for next year. Fixating on a single price target can be unwise though, since the consensus target is effectively the average of analyst price targets. As a result, some investors like to look at the range of estimates to see if there are any diverging opinions on the company's valuation. There are some variant perceptions on Royal Mail, with the most bullish analyst valuing it at UK£4.00 and the most bearish at UK£1.05 per share. With such a wide range in price targets, analysts are almost certainly betting on widely divergent outcomes in the underlying business. With this in mind, we wouldn't rely too heavily the consensus price target, as it is just an average and analysts clearly have some deeply divergent views on the business.
Taking a look at the bigger picture now, one of the ways we can understand these forecasts is to see how they compare to both past performance and industry growth estimates. Next year brings more of the same, according to the analysts, with revenue forecast to grow 4.4%, in line with its 4.1% annual growth over the past five years. Compare this with the wider industry, which analyst estimates (in aggregate) suggest will see revenues grow 2.2% next year. So it's pretty clear that Royal Mail is forecast to grow substantially faster than its industry.
The Bottom Line
The most important thing to take away is that the analysts reconfirmed their loss per share estimates for next year. Happily, they also upgraded their revenue estimates, and are forecasting revenues to grow faster than the wider industry. We note an upgrade to the price target, suggesting that the analysts believes the intrinsic value of the business is likely to improve over time.
With that in mind, we wouldn't be too quick to come to a conclusion on Royal Mail. Long-term earnings power is much more important than next year's profits. We have estimates - from multiple Royal Mail analysts - going out to 2025, and you can see them free on our platform here.
That said, it's still necessary to consider the ever-present spectre of investment risk. We've identified 3 warning signs with Royal Mail , and understanding them should be part of your investment process.
This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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